Top five investment ideas for 2018

As the old fiscal year comes to a close and a new financial year begins, it is time to look ahead at the asset classes that could outperform. With an overhang of global and domestic cues, it looks like the equity markets may challenge on hand. Fiscal year 2018-19 is obviously not going to be a year of straightforward positive returns on the index. The actual market story is going to more nuanced and subtle. Here are 5 asset classes or themes that one can take as investments ideas for fiscal year 2018-19.

1. India Consumer Facing Story

If you talk about the India consumer story, the typical response would be, "Oh, I have been hearing about this for a very long time". The good news this time around is that the India consumer story may have finally reached its tipping point. Normally, tipping points are the specific points from where the growth can be exponential. The tipping point for these consumer facing industries is an outcome of 3 key factors. Firstly, rising income levels means sustained demand for consumer goods. The liquidity infusions in the form of the OROP, pay commission arrears, HRA payouts, greater investments in rural infrastructure and more income opportunities for rural India are all going to give a push to demand for consumer goods. Secondly, GST is creating logistical efficiencies for the consumer facing companies. Thirdly, digitization is making consumer goods accessible at a much lower price point. This could have long term implications for a plethora of sectors. Consumer facing sectors like private banks, NBFCs, FMCG products, food products, consumer durables and two-wheelers could all see a sharp spurt in demand. Obviously, a secular story like this is best played through equities or through equity funds.

2. India Agricultural story

When we are talking about the India agricultural story, we are not only talking about the demand generated in rural India by higher rural incomes. That is part of the demand story. We are now talking more about the supply story. The latest Union Budget 2018 has assured farmers of Kharif crops minimum support price (MSP) at 150% of the cost of production. This is somewhat like the IRR type of pricing where the farmer is allowed to charge a 50% mark-up on the cost of production. Also, the farmer can include the cost of fertilizers, notional labour, agrochemicals, pesticides and hybrid seeds and the MSP will be fixed as a mark-up to the cost. This will encourage the farmer to invest more in farm support and productivity support products. We could see a spurt in demand for products like fertilizers, agrochemicals, hybrid seeds, drip irrigation systems, plastic pipes etc. Companies manufacturing these products could be ripe picks for investors. Of course, you can play this story either through direct equities or through focused funds.

3. Gold ETFs and RBI Gold bonds

Why are we bullish on gold? Normally, gold tends to outperform during times of uncertainty. The next 1 year will see the price of crude oil getting volatile due to demand and supply pressures. Secondly, we are already seeing political unrest in Syria, Yemen, Nigeria, Libya and Venezuela and that is likely to continue in the months to come. Therefore gold ETFs could be a good bet to use gold prices as a hedge against global market volatility. While World War like situation could still be a far-fetched idea, the schisms are likely to widen between the West and the East. Gold could be a big beneficiary. In fact, you can also look at RBI gold bonds as an option. You not only get a central government guarantee in this case but also get the benefit of 2.50% assured interest on these bonds, apart from participating in gold price movement.

4. Fixed Maturity Plans (FMP)

Fixed maturity plans (FMPs) are debt funds that are closed ended in nature. Since the maturity of the fund is known in advance, the fund manager typically creates a portfolio where the maturity of bonds matches with the maturity of the FMP. This largely, eliminates the risk of price risk on these bonds. Price risk arises because when interest rates go up, the price of these bonds come down. Since the maturity of the bonds match with the maturity of the FMP, there is really no price risk involved. This is all the more important in a year when the US Fed is expected to hike the Fed rates by 75-100 basis points and the RBI may be forced to follow suit. FMPs will help you lock in your rates and also minimize your price risk at a time when rate are threatening to rise!5. ETFs on global indices

When India is going to perform fairly well on a theme-specific basis, what is the idea of buying an ETF on global indices. There are two reasons for this idea. Firstly, in a portfolio that is predominantly India-weighted, the global ETFs allow you an element of global diversification. That will reduce the overall risk in your portfolio, especially considering that India could be vulnerable to spikes in oil prices. The second reason is more active. Economies like the US, UK, EU and Japan is likely to see a revival in growth and that will get reflected in the equity values. Having exposure to global index ETFs will help you participate in this global growth revival.